Resort fees. Destination fees. Amenity fees. Whatever hotels call them, these daily charges that, often without clear notice, are levied on top of the daily room rate are an increasingly popular pricing tool for swelling profit margins beyond the base rate.
The fees can reach $45 or more per day for packages of services that include items such as daily bottled water, high-speed Internet access and even treats for guests' dogs. (For more, see "What Exactly Are These Charges?")
For many planners, attendees and regular civilians, however, they are a major source of frustration -- not to mention shock upon seeing the final bill. "Resort fees do not seem ethical or fair," says one corporate planner. Some states agree and are taking legal action.
Here's a closer look at these controversial charges, the current legal battle and what the future might hold.
Tell it to the Judge
This past July, Karl Racine, Washington, D.C.'s attorney general, filed a civil lawsuit against Marriott International, accusing the lodging company of alleged "drip pricing" practices that tack on hidden fees to hotel bills. "Marriott reaped hundreds of millions of dollars in profit by deceiving consumers about the true price of its hotel rooms," Racine charged. Less than two weeks later, Nebraska filed a similar lawsuit against Hilton. "For years, Hilton has misled consumers in Nebraska regarding the true cost of certain Hilton hotel rooms," claimed Doug Peterson, the state's attorney general. "They failed to heed warnings from the Federal Trade Commission and the mounting complaints of their own customers."
Both hotel companies told Meetings & Conventions they do not comment on pending litigation; as of press time, neither had filed a response to the lawsuits. However, Marriott president and CEO Arne Sorenson, in an interview with Daniel Roth, editor in chief of LinkedIn, said the lawsuit was frustrating. "We have been going through this for a number of years and talked to the attorneys general of many states," Sorenson told Roth. "D.C. withdrew [from talks] sort of at the last moment and decided to make a bigger case out of it. We will obviously fight it. We think it's wrong. It's well-disclosed."
Fees and Leaner Profit Margins
Late last year, hotel industry analyst Bjorn Hanson estimated that fees and surcharges at U.S. hotels, which have increased every year since 2010, would grow by 8.5 percent over 2017 to a record high of $2.93 billion in 2018. Why? Such charges have become an important revenue generator in offsetting rising operating costs.
"There is a difference between being illegal and being unpopular," says Hanson, who notes that resort fees are important to hoteliers because revenue growth, despite increased occupancy levels, has been stymied by rising operating costs. "Hotels are being subjected to large increases in labor, as well as insurance, real estate, construction and financing costs, which are all growing faster than inflation," he says.
According to the Bureau of Labor Statistics, the hourly wage for non-supervisory workers in the hospitality sector increased by 3.2 percent in 2018, compared with the year before. Meanwhile, according to STR, the average daily hotel room rate grew by only 2.4 percent in 2018 and is projected to grow by just 2.3 percent this year.
This past August, during a second- quarter earnings call with analysts, Marriott reported that its profit margins were down 10 percent due to lower growth in revenue per available room and rising wages. In 2018, thousands of striking Marriott employees in eight cities drove a hard bargain at the contract-negotiation table that resulted in the chain agreeing to higher wages and larger compensation packages.
In addition, says Hanson, in the markets where resort fees are part of the structured pricing model, it makes no sense for hotels simply to add them to their room rates, because it would put the properties at a competitive disadvantage. "Consumers are so focused on price when they are researching hotels online," he notes. "A mere $2 difference in room rate, over everything else I have studied, shifted market share the most. It didn't matter if it was a luxury or economy hotel, it still shifted."
Robert Cole, senior research analyst, lodging and leisure, for travel-industry research firm Phocuswright, agrees. "The big problem with drip pricing is that it forces the other hotels to engage in the same practice, because if you don't, you look more expensive to the consumer," he says. "Your base rate is higher, and good luck explaining that to someone who is just searching through hotels online."
Hidden Fee Backlash
Resort fees first began popping up in Las Vegas in the 1990s, when a number of new luxury properties opened on the strip. Such charges were viewed then as an easy way for hotel owners to generate additional income to help offset their heady investments. Today, the fees are as synonymous with the gaming destination as high-roller casinos and big-name entertainment.
On Aug. 1 of this year, MGM Resorts International raised the resort fee at its Aria, Bellagio and Vdara properties by $6 per day, bringing the daily charge to $45, which, along with the 13.38 percent Clark County occupancy tax, comes to more than $58. For its part, MGM said it is only matching comparable fees already in place at Wynn and the Las Vegas Sands.
"Personally, I think the issue of hotels charging resort fees is overblown, because very few do, and for those that do, it's a minor source of revenue," says Robert Mandelbaum, director of research information for CBRE, a global hospitality research firm. "The real issue here is transparency. Hotels have an obligation to disclose these mandatory fees to guests when they are booking rooms, and shame on those that don't."
In November 2012, the Federal Trade Commission sent a letter to 22 hotel operators warning them that the agency had received numerous consumer complaints about deceptive online drip pricing, and that they might be violating consumer-protection laws. The FTC encouraged the hoteliers to review their websites to make sure they weren't "misrepresenting the total price consumers can expect to pay when making a reservation to stay in your hotel."
In the years since, the issue of pricing and transparency continued to heat up. In 2016, 47 attorneys general opened a formal investigation into whether hotel chains charging undisclosed or poorly disclosed fees had violated consumer-protection laws. Then, in January 2017, the FTC published Economic Analysis of Resort Fees, which noted that "separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations."
Now that the two lawsuits against Marriott and Hilton have been served, it remains to be seen whether a broader industry investigation might result in more legal action. To date, the FTC has not gotten further involved, and it is too early in the legal process to expect hotels to change their pricing models.
The fact that there has been no comment from the FTC in the aftermath of the two filings, says Hanson, could be an indicator of the strength of the lawsuits. "If these two cases don't go well, it causes the other attorneys general to say, 'These are not being won. Do we want to risk following suit?'" says Hanson. Stay tuned.